PARTNERSHIP and CORPORATION

FINANCIAL STATEMENT ANALYSIS

1. This ratio shows the relationship between sales and the cost of products sold.
a) Gross profit margin c) Net profit margin
b) Operating profit margin d) Return on ordinary equity
2. Current asset turnover is a measure of
a) The company’s liquidity of its current assets
b) The overall efficiency and profitability of the firm
c) The distribution of assets in which funds are invested
d) The movement and utilization of current resources to meet operating requirements
3. Financial ratios that show the proportion of all assets that are financed with debt
a) Debt ratio c) Equity ratio
b) Debt to equity ratio d) Times interest earned
4. A more severe test of immediate solvency; a test of the firm’s ability to meet demands from
current assets is
a) Current ratio c) Cash flow liquidity ratio
b) Acid-test ratio d) Working capital to total assets ratio
5. The sale of the company’s office machines is a cash flow transaction under the
a) Operating activity c) Financing activity
b) Investing activity d) Sales activity
6. It is the income distributed to stockholders
a) Gross margin c) Dividend
b) Net profits d) Net profits
7. Measures how many times interest expense is covered by operating profit.
a) Return on assets c) Times interest earned ratio
b) Return on equity d) Debt to equity ratio
8. Measure the efficiency of the company in meeting its trade payables.
a) Payable turnover c) Working capital turnover
b) Trade receivable turnover d) Inventory turnover
9. Measures the firm’s efficiency in managing all assets is
a) Investment or asset turnover c) Working capital to total assets ratio
b) Fixed assets to total equity ratio d) Rate of return on assets
10. It is the evaluation of the past performance of the company using financial statements.
a) Budget analysis c) Historical analysis
b) Financial analysis d) none of the above
11. The following are objectives of financial planning, which is not
a) Planning c) Budgeting
b) Coordination d) Control
12. This measures profit generated after consideration of operating costs is
a) Gross profit margin c) Net profit margin
b) Operating profit margin d) Cash flow margin

PART II. CASE ANALYSIS (2 points each)

Case Analysis #1
AIRWAYS TRANSPORT Corporation has the following selected financial data during its operations as
of December 31, 2017 as follows:
Current assets - excluding Merchandise Inventory amounting to
P50,000 and Accounts receivable amounting to
P 40,000. P 150,000
Total non-current assets 80,000
Current liabilities 100,000
Net sales 900,000
Cost of goods sold 675,000
Operating expenses 120,000
1. What is the company’s current ratio ?

240,000: 100,000 2.4 : 1

2. What is the company’s acid-test/quick test ratio ?

1,015,000:80,000
12.69:1
3. What is the gross profit margin ? 25%

4. What is the rate of return on assets (ROA) ? 2.81%

Case Analysis #2
WAYBILL TRANSPORT, Incorporated has provided the following selected financial data for the period
ending December 31, 2015 as follows:
Net sales P 1,750,000
Cost of goods sold 1,050,000
Operating expenses 315,000
Net operating income 385,000
Net income 195,000
Total stockholders’ equity 600,000
Total assets 1,100,000
Total liabilities 500,000
Cash flow from operating activities 50,000

5. What is the company’s return on equity ? 32.5%

6. What is the company’s debt ratio? 45%
7. What is the company’s gross profit margin ? 81%
8. What is the company’s profit margin ? 11%
SOLUTIONS:
PART II:
CASE 1

1. current ratio = current assets/current liabilities

= 240,000/ 100,000
= 2.4 :1

2. company’s acid-test/quick test ratio= total asset/current liabilities

= 1,015,000/80,000
= 12.69:1

3. Gross Profit = total revenue- cost of goods sold

Total revenue
= 900,000 - 675,000
900,000
= .25 * 100
= 25%
4. ROA = net income / total asset
= 900,000 / 320,000
= 2.81 %

CASE 2

1. return on equity = net income / share holder’s equity

= 195,000/600,000
= 32.5 %

2. debt ratio = total liabilities / total assets

= 500,000/1,100,000
= 45%
3. Gross Profit Margin = total revenue- cost of goods sold
Total revenue
= 580,000 - 1,050,000
580,000
= .81 * 100
= 81%

4. Profit Margin = net income/net sales

= 195,000/1,750,000
= .11 *100
= 11%